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Eastman Kodak Co. (NYSE: EK) filed Chapter 11 early this morning (Thursday), becoming one of the first to file among the staggering number of U.S. companies headed for bankruptcy this year.
The Rochester, NY-based company, started in 1880, has been bleeding money since consumers ditched film for digital photography. Eastman Kodak listed assets of $5.1 billion and debt reaching $6.8 billion in its U.S. Bankruptcy Court filing.
"They were a company stuck in time," Robert Burley, an associate professor at Toronto's Ryerson University, told Bloomberg News. "Their history was so important to them, this rich century-old history when they made a lot of amazing things and a lot of money along the way. Now their history has become a liability."
Kodak stock had fallen more than 35% by 2:00 p.m. today, bringing its total slip for the past year to more than 93%.
Tech Developments Killed Eastman Kodak Co. (NYSE: EK)
As film cameras headed toward extinction, Eastman Kodak's revenue plunged without a substantial product line that could compete with the growing trend toward digital photography.
Kodak was actually the first to create the digital camera in 1975, but shelved the model fearing it would derail its profitable film business.
While Kodak was successful at securing patents and developing new technology, it was unable monetize it. Kodak tried to sell more than 1,100 digital-imaging patents to make enough money to shift to a digital-product focus, but failed to reach its goal.
"Basically, a new technology came along and it eliminated the need for their core product; people don't sell film for digital photography," Business Insider Editor Henry Blodget told American Public Media's "Marketplace" program. "People like to say it's that the companies were stupid or they missed something. I think the truth is, that the market changed and they just didn't change quickly enough."
Besides failing to advance, businesses also have to contend with this year's limited growth economic environment and mild consumer spending. These factors make it nearly impossible to pay down debt – meaning a growing number of companies headed for bankruptcy this year.
Companies Headed for Bankruptcy in 2012
While 2011 was a busy year for Chapter 11 filings, 2012 corporate bankruptcies will be double in number and size, according to Fitch Ratings Inc.
Fitch says companies posing the most risk are those with a lot of high-yield and low-grade CCC bonds, as well as middle-market companies valued between $200 million and $1 billion.
"Nobody is going to want to put more money into these companies," Harvey Miller, a bankruptcy partner at the law firm Weil Gotshal & Manges, told CNNMoney. "Hedge funds didn't have a good year so that will play into it too."
Besides mid-cap companies, some big names that have posted losses for several quarters could finally reach their financial breaking point this year. The retail, restaurant, and consumer-products industries will be hit the hardest.
Investors should beware the following companies topping the bankruptcy watchlist for 2012:
Barnes & Noble Inc. (NYSE: BKS): With the fall of rival Borders last year and the company's successful Nook e-reader, you'd think Barnes & Noble would be doing well. The trouble is, it still has to compete with Amazon.com Inc. (Nasdaq: AMZN), which recently introduced a fresh line of Kindle e-readers aimed directly at the Nook. The company's net profit margin in 2011 was -1.06%. Its market cap is down to $695 million, and stock is down 32% in the past year.
"While Barnes & Noble has benefited from deep-pocket investors who have built a major stake in the company, the fundamentals aren't there to support this investment," said Global Macro Trends Specialist Jack Barnes." It is extremely overleveraged, and the company has reached the stage where it's borrowing money to pay high dividends."
Sears Holdings Corp. (Nasdaq: SHLD): Sears announced last month it was closing 100 stores. Its stock lost about 25% in one day after the news broke, and is down 41% over the past year. Its income has slipped for several quarters while its debt pile grows. Sears' third-quarter earnings per share (EPS) were a loss of $3.95. In addition to poor retail performance, Sears also lost money in real estate.
"The bet about Sears has never been about retailing," Money Morning Chief Investment Strategist Keith Fitz-Gerald said earlier this month. "The play here for years has been Sears as a land bank. But real estate is in the toilet and no amount of new merchandising can help offset this."
DineEquity Inc. (NYSE: DIN): While not as synonymous with American business as Kodak or Sears, DineEquity does represent the struggling U.S. food industry. It operates Applebee's Neighborhood Grill and Bar and International House of Pancakes (IHOP). Venerable restaurant chains haven't done well lately, with several going bankrupt during the current economic downturn, including Friendly's, Fuddrucker's and Sbarro. The company has $1.5 billion in debt on its balance sheet, which it refinanced in 2010 hoping to buy time. But its declining revenue is a sign the move didn't work. Its stock has fallen more than 17% in the past six months.
News and Related Story Links:
- Money Morning:
Seven Prospective Corporate Bankruptcies
- Money Morning:
Is It Time to Buy These "Death Watch" Stocks?
More low-tech companies filing Chapter 11
- Bloomberg News:
Kodak Files for Bankruptcy as Digital Era Spells End to Film
Bankruptcies 2012: Doubling down